Faster Internet speed offerings and consumer demand will leave third-party ISPs behind, Primus says

GATINEAU, Que.—Today’s retail Internet market remains competitive but faster speed offerings will leave third-party Internet service providers (ISPs) behind if they can’t access the “central offices” of the incumbents’ networks, Matt Stein, vice-president of network services with Primus Telecommunications Canada Inc., told the CRTC Friday. “We were candid in our presentation Monday when we agreed that the residential market is currently competitive,” Stein said. “However, that is changing, and fast, because customer demands for speed are increasing and the ILECs and cable companies are responding with faster speed offerings. The market is very quickly becoming uncompetitive.” Stein addressed the commission on the final day of weeklong CRTC hearings to determine whether the commission should mandate wholesale access to the incumbent phone and cable companies’ so-called next generation networks. In a December 2009, the federal Cabinet ordered the CRTC to revisit a 2008 speed-matching decision in which the commission decided that the incumbents must offer speeds to their wholesale customers that match those offered to their retail customers. The speed-matching issue was rolled into a larger hearing to mandate access to high-speed wholesale access services. Small ISPs like Primus say regulation is required to provide them access to the incumbents’ high-speed fibre networks—as opposed to the legacy networks—which they argue is a barrier to entry and competition. High capital costs prevent them from building their own facilities. Third-party ISPs told the commission that access to the networks would allow them to climb the investment ladder to the point where they can generate enough capital to build their own facilities. “In several European countries, there have been entrants who have successfully climbed the ladder of investment, who have entered as resellers, and who have become facilities-based competitors,” Roger Ware, a professor of economics at Queen’s University and an expert witness for the third-party ISP TekSavvy Solutions Inc., said Friday. Ware identified French company Free as an example of an organization that did just that. He said the carrier now has 20 per cent of the French market and is currently investing about $1 billion into new fibre. Free did not start as an incumbent, but as a wholesale buyer, and Ware said it gained market share thanks to French laws that allowed more open access to the incumbents’ networks. “The facilities required by competitors to provide these services are controlled by the incumbents, such that denial of access to facilities would result in a substantial lessening or prevention of competition as the market moves toward higher speed services, more differentiated services and service bundles that are increasingly out of reach of competitors,” Chris Tacit, outside counsel representing TekSavvy, told the commission. The incumbents argued Friday that the opposite is true. “It is also our position that further unbundling will actually lead to a lessening of competition between cable carriers and carriers like Telus, and a reduction in investment in advanced networks in marginal areas,” Michael Hennessy, Telus Corp.’s senior vice-president of regulatory affairs, told the commission Friday. Hennessy said unbundled access to its high-speed networks would threaten Telus’ roll out of Internet protocol television (IPTV). “In the residential business, even with an appropriate mark-up to reflect full costs, we still lose the ability to offer that pipe to customers to sell IPTV and that is the principle reason that we’re making the investment in the first place,” Hennessy said. “We’ve lost now over 30 per cent of our own market, including about 700,000 customers to cable. Our costs of telephone services are not going down … We have at this point a slower Internet service than the cable companies … and we have a tremendous gap to close in the TV business. We are as new an entrant as anybody in this room, when it comes to TV.” Mirko Bibic, Bell Canada’s senior vice-president of regulatory and government affairs, told the commission that the rollout of IPTV is also a priority for Bell. He rejected suggestions from third parties that Bell could grant more broadband access without adversely affecting its IPTV offering. “We’re investing in FTTN and FTTH to deliver IPTV, to enter into that market,” Bibic said. “We’re not investing so that we can turn into everybody’s science experiment.” Third-party ISPs had proposed that Bell install a second copper line into people’s homes so that wholesale competitors could run parallel to the incumbent’s line. “There aren’t second lines all over the place that we can use, and to install second lines is just going to increase the cost of operation,” Bibic said. He added that sharing the line would generate problems for Bell because it could mean dividing service bundles. A customer could potentially buy their Internet from Bell but pay a competitor for their phone service. Parties are expected to submit final submissions and comments to the CRTC by June 21, 2010. jmigneault@thewirereport.ca

Faster Internet speed offerings and consumer demand will leave third-party ISPs behind, Primus says

News | June 4, 2010

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